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The production of food products has been increasing in step with the rise in urban / rural population and export of food products is too insignificant to have any impact on prices. The real reason for the runaway rise in food prices seems to be the Inefficient Market mechanisms. Here is a brief discussion:
Too many middlemen:
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In 1951-52, 89% of what the consumer spent on food reached the farmer. Today, only 34% reaches him while 66% goes to middlemen.
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This amounts to a whopping Rs 20 lakh crore.
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This is because as per the Agricultural Produce Market Committee Act (APMC Act), a farmer must take his produce to a ‘market yard’ and sell it through middlemen.
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The chain of middlemen consists of eight to 10 links, each adding his profit margin of 30% or so. This is one of the main reasons that a farmer gets only Rs 5 per kg for onions while the consumer pays over Rs 30 per kg.
Need to change APMC Act:
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The APMC act was passed in 1954. There is a need for amendment and improvements in this act. In this context, the Union Government had prepared a Model APMC Act in 2003.
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But agriculture being a “state subject”, many states have yet to adopt this Model Act – which provides for direct selling by farmers, contract farming and aims to remove interstate barriers for movement of food products.
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However, we have some exceptions too. Andhra Pradesh has started ‘Raythu Bazar‘ (farmer’s market) where farmers can sell their produce directly to consumers at select locations in the city.
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Similarly, ITC has started an ‘e-chaupal’ scheme to provide internet connectivity to farmers so that they can decide to sell their produce directly to supermarkets or through market yards. The scheme covers four million farmers in nine states.
Problem of Storage:
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At present 30-35% of food products perish during storage and transportation. If this proportion is reduced, supply would substantially increase and prices would come down. For this, India needs to develop cold chains for storage and transportation all over the country on a massive scale.
Promote Contract Farming:
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The Model APMC Act provides for contract farming. Contract farming is agricultural production carried out according to an agreement between a buyer and farmers, which establishes conditions for the production and marketing of a farm product or products. Some companies have already made forays, sourcing produce from farmers under contract and selling them under their own brand names. More such initiatives are required by corporate retailers for a variety of farm produce. This would improve farm productivity and total food production.
Insurance Schemes:
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Unseasoned rains, famine or pests hit farmers every three to four years. In order to prevent such calamities from devastating them, insurance companies should come forward with different schemes to give insurance cover to farmers so that they can protect their incomes.
Free Interstate Trade
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At present, agricultural produce does not freely move across state boundaries. The time has come to remove such restrictions.